How a Chinese Company Took on the U.S. Constitution

[Randy W]

in the SixthTone



How a Chinese Company Took on the U.S. Constitution
Construction equipment-maker Sany’s landmark legal victory shows China’s businesses the benefits of following legal procedure abroad.

CFIUS is a powerful agency whose work is often shrouded in mystery. According to Section 721 of the Defense Production Act of 1950, CFIUS does not need to provide justification for its investigation. From 1988 to 2011, CFIUS received 2,266 case reports but investigated only 161 of them.
Out of these 161 cases, 34 prohibitions were submitted to the U.S. president for approval, and only two were approved — one by George H. W. Bush in 1990 on the defense company China National Aero-Technology Import & Export Corporation, and one on the Sany Group. Interestingly, both prohibitions have been on Chinese companies.
Sany was backed into a corner. They had only two options left: first, they could obey the prohibition, effectively admitting guilt and hurting all future business dealings in the U.S.; second, they could sue CFIUS and the president of the U.S.
They opted for the second choice and charged the president with violating the Fifth Amendment of the U.S. Constitution, which gives defendants the right to due process, and which Sany attested they were denied. They also sued CFIUS for discrimination, since there were seven other foreign corporations operating in the same area as Sany that hadn’t been prohibited.
The lawsuit didn’t go smoothly. In October 2013, the court ruled against the plaintiff. Sany appealed and in November 2014, the court ruled that the presidential order violated the constitution. One year later, the Chinese group and the U.S. government reached a comprehensive settlement.
There were two noteworthy points in the settlement. First, Sany was allowed to sell the wind farms project to a third party, effectively settling the company back where it started; second, other projects by the group in the U.S. were decided not to pose any threats to national security.
Although the case has finished, its implications are historic. CFIUS has never been challenged since its establishment in 1975. This case helped set up a legal precedent, and the way foreign corporations are treated in the U.S. is changing.
But what lessons can be drawn from all of this? The most important is that overseas Chinese firms must follow legal procedure and not rely on connections or other methods to resolve tenuous issues
Liang Wengen, the chairman of Sany’s chairman of the board of directors, was bitter before submitting the case to the court. He said that “we will do our best to fight the case. It will tell us what American democracy really looks like.” But in the end, after Sany had received due process, the company legal representative commented: “It may be our victory, but it proves the justice of your legal system and the supremacy of your constitution.”